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The Confidence Man

His defenders make an equally emphatic argument, insisting that his actions effectively changed the incentives inherent in the system. “What David is doing is highly principled,” says Herb Greenberg, a former financial journalist, now an independent stock researcher, who alerted Einhorn to the possibility that his phone records had been searched by Allied. “This is the way you want the system to work—people saying what they think, on the record, so that people can decide for themselves. This is not Sunday school. It’s the market. It’s a tug of war. It’s when negative opinion is suppressed that bubbles grow.”

It turns out Einhorn was right. At the beginning of last week, Lehman Brothers announced that it had lost $2.8 billion in the second quarter, and that it would be raising $6 billion through an issuance of common stock to shore up its balance sheet. The stock dropped precipitously every day thereafter, and rumors started to circulate about a possible sale, a startling turn of fortune for a company that had only recently been comparing itself to the vaunted Goldman Sachs. In an e-mail analysis, value investor Whitney Tilson credited Einhorn with having made Lehman face facts: “The losses are the losses—Einhorn certainly isn’t causing them. But thanks in large part to his questions, the company is selling assets, deleveraging and raising capital, all of which makes it more likely that the firm lives to fight another day rather than imploding and shaking the world financial system to its core.” On his New York Times DealBook blog, Andrew Ross Sorkin put it more bluntly: “Few people had more reasonable claim to vindication on Monday than David Einhorn.”

Then heads started to roll. On Thursday, Lehman announced the replacements of Callan and the company’s chief operating officer, who had worked with CEO Fuld for more than twenty years (Callan will retain an investment-banking job at the firm). Einhorn refused to apologize, but neither did he gloat. In fact, he chose to exit the stage. He refused to talk about when Greenlight would cover its Lehman shorts, or what he thought about Callan’s losing her CFO job. The truth had been revealed. The story was over. There was nothing more to say.

Some weeks before the Lehman story blew up, Einhorn went to play tennis at the courts at Grand Central. Greenlight has a court reserved one afternoon a week for whoever from the firm can make it, and fairly regularly, that includes Einhorn. It’s one of the few things he does outside work that doesn’t involve his wife and kids. “I’ve got a fantasy-baseball team with my brother,” he says. “But I have to admit, he does all the work.”

He and his colleagues play a goofy, good-natured game in which every halfway decent shot is loudly praised. But they do keep score. When Einhorn fell behind on his serve, you could see him reach back to put a little extra smack on the ball.

At the end of their match that day, as Einhorn left the court, two waiting players, guys who looked like hedge-funders out of central casting, recognized him.

“Hey, you’re…”

“David Einhorn.”

“Yeah, the poker guy.”

Today, his gambling skills are held in higher regard than ever. While his supporters hail him as a brave reformer and his detractors call him a predator, most of Wall Street looks at him as the guy who called Lehman’s bluff and walked away with a giant pot.